Business climate still clouded: HSBC

BRIGHT SPOT:Although the banking group’s PMI showed manufacturing contracted last month and sentiment had worsened, it said the rate of decline was slowing down

By Crystal Hsu / Staff reporter

HSBC Holdings PLC’s Taiwan Purchasing Managers’ Index (PMI) posted a 49.5 reading last month, up from 47.1 in May, indicating a marginal deterioration in the business climate, but that the pace of decline is slowing, the British banking group said in a report released yesterday.

Operating conditions in the manufacturing sector worsened for the second successive month, as firms reported slight reductions in the amount of new orders due to weak external demand, the report said.

“Taiwan’s manufacturing contraction eased a little last month, but businesses are still feeling the weight of China’s slowdown and weak Western demand,” HSBC Greater China economist Donna Kwok (郭浩庄) said in the report.

The sustained contraction did not spill over into the job market, with the latest unemployment rate of 4.06 percent marking an almost five-year low thanks to inventory reduction initiatives, Kwok said.

HSBC’s PMI is a composite of 11 sub-indices — new orders, output, employment, suppliers’ delivery times and stocks of items purchased — that gauges the health of the manufacturing industry. A score below the neutral 50-point mark indicates a contraction and values above that threshold suggest expansion.

Lower volumes of new business led to a reduction in the level of work-in-hand and purchasing activity declined to reflect the lower production requirements, the report said.

On the price front, input costs fell sharply as demand for raw materials softened, the report said, adding that firms cut output charges at a solid pace in an attempt to attract new business.

“Manufacturers passed on their savings to clients by discounting their own charges for the 15th month in a row to stay competitive,” Kwok said.

Suppliers shortened their delivery times for the fifth consecutive month, with the improved performance linked to decreased demand, the report said.

HSBC expects business conditions to soften further in the coming months as international technology giants postpone launches of new products to cope with the low sales season.

Softening export figures will put pressure on the government to step up delivery of stimulus measures to fuel the other engine of growth: domestic demand, Kwok said.

The nation’s official PMI data for last month is to be released today by the Chung-Hua Institution for Economic Research (中華經濟研究院).

Last month, the official gauge posted its second consecutive decline to 55.3 from the 56.8 recorded in April, indicating still-weak momentum in manufacturing.